UK Competition Appeal Tribunal Overturns Abuse of Dominance Fines on Pharmaceutical Companies
The UK's Competition Appeal Tribunal (the "CAT") has overturned a finding of abuse of dominance against Pfizer Inc. and Flynn Pharma Ltd. The ruling followed appeals by those companies against a 2016 Competition & Markets Authority ("CMA") decision which held the two companies had abused their respective dominant positions as the manufacturer and distributor of phenytoin sodium capsules, used to treat epilepsy. The CMA had concluded that the parties had increased the price of the drug to the National Health Service by up to 2,600% and that such pricing was excessive and abusive. It fined Pfizer £84.2 million and imposed the maximum possible fine on Flynn (£5.2 million), 10% of its global annual revenues.
The CAT concluded that the CMA misapplied the test for an abuse of dominance under EU and UK law.
The CAT confirmed that Pfizer and Flynn were dominant in the respective markets of the manufacture (Pfizer) and distribution (Flynn) of phenytoin sodium capsules distributed in the UK.
The CAT ruled that CMA erred in applying the two limb legal test for assessing unfair pricing – that the price must be excessive and it must be unfair.
The CAT found the CMA incorrectly took a pure "cost plus" approach to assessing excessive pricing. It has failed to consider a benchmark price or price range which would have applied in conditions of "normal and sufficiently effective competition" and was wrong to disregard customer benefit in considering the capsule's economic value.
As to unfair pricing, the CAT held that the CMA failed to take account of meaningful comparators such as phenytoin sodium tablets (which are much more expensive than capsules) and their potential competitive pressure.
The CAT has remitted the case to the CMA, which plans to appeal the decision and must also decide whether to carry out a new assessment. Whatever steps it takes are likely to be significant. The CMA, the European Commission, several other EU member states and the U.S. have had and have ongoing investigations into alleged excessive pricing of pharmaceuticals. They come against a background of political and media pressure to reduce healthcare costs across Europe.
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Dr. Christian B. Fulda
Alastair J. McCulloch
Victoria M. Yuan, an associate in the London Office, assisted in the preparation of this Alert.
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